Tether “Constrained” but USDP “Strong” in S&P Stablecoin Rankings

Key Takeaways

• Tether (USDT) rated “constrained” in S&P’s latest stablecoin stability assessment.
• S&P Global Ratings gives USDM an “adequate” stability score while some other players are “strong.”
• The stablecoin market is valued at almost $149 billion and Tether has the highest market cap.

Although the stablecoin market continues to have massive $149 billion market, some coins might be considered not so “stable”. S&P Global Ratings has released its latest stablecoin stability assessment, which provides insights on Tether (USDT), and Pax Dollar (USDP), among other cryptos. At the time of writing (March 20 2024), Tether has the highest market capitalization in the sector.

Stablecoin’s Market Stability

S&P Global Ratings notes  that it has developed a stablecoin stability assessment (SSA) to evaluate the coins against traditional fiat currencies. The ratings range from “strong” to “weak,” with top stablecoins under scrutiny in the latest report.

Tether (USDT), the largest stablecoin player, finds itself tagged as “constrained”. On the other hand, Pax Dollar (USDP) earned a “strong” stability status.

Meanwhile, Mountain Protocol USD (USDM) has emerged as a new entrant, receiving an “adequate” rating for its ability to maintain a stable price relative to the US dollar.

The SSA ratings reflect the quality of assets backing each stablecoin and other factors such as regulation, governance, and liquidity. For example, Dai (DAI), First Digital USD (FDUSD), and Tether (USDT) all got a “constrained” rating. This indicates potential limitations in maintaining their peg to the dollar.

The report noted: “S&P Global Ratings assesses the ability of Tether (USDT) to maintain its peg to the US dollar at four (constrained). Our asset assessment of four reflects a lack of information on entities that are custodians, counterparties, or bank account providers of USDT’s reserves.”

On the other hand, the Gemini dollar (GUSD), Pax Dollar (USDP), and USD Coin (USDC) all received “strong” ratings, in some ways giving reliability and stability to the coins.

The report also said: “USDC benefits from full backing by low-risk assets, primarily short-dated securities, and deposits with banks.”

Transparency in DeFi and Crypto

With the absence of globally accepted benchmarks that indicate risks associated with digital assets, market players have long shot in the dark. The stablecoin market is a $149 billion sector, according  to CoinMarketCap data. Tether dominates a market cap of $103 billion, followed by USCD with $31 billion and Dai, with $5 billion.

In February, JPMorgan raised  concerns that the increasing dominance of Tether in the cryptocurrency market could pose risks to the sector. The banking giant criticized the stablecoin for its lack of “compliance and transparency”.

Previously, agencies raised compliance issues with Tether and the player has since taken steps to rebuild its reputation. However, amid the lack of a regulatory framework for stablecoins, some concerns persist.

Future of Stablecoins

Stablecoin stability assessment can offer some insights due to the lack of any existing industry benchmarks. As the crypto market grows, issuer transparency will play a crucial role in building confidence in the stablecoin asset class. With Tether facing constraints and USDP showing strength, it looks like some stablecoins could face scrutiny.

About the Author

Shraddha Sharma

Shraddha has around five years of experience as a financial journalist, focusing largely on the Asian markets. Starting her career in Mumbai, India, as a news trainee and producer, she quickly found her niche in crypto. She is keen on learning how emerging technologies affect the broader markets and enjoys explaining complex financial ideas in a way that's easy to understand.

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